TDS on FD Interest - How Much Tax is Deducted on FD Interest

Understanding the concept of TDS (Tax Deducted at Source) is helpful for managing your income and investments effectively. Whether you are earning interest from Fixed Deposits or other income sources, TDS is deducted by the bank or institution as a part of your tax liability. Knowing how TDS works helps you stay compliant and avoid surprises during tax filing.

With updated PAN details and timely declarations like Form 15G / 15H, you can manage or even reduce your TDS burden. This post will help you understand everything you need to know about TDS, rates, limits, exemptions and more, so you can plan your finances better and save tax wherever possible.

How is TDS Calculated on Fixed Deposit (FD)?

The interest income you earn from an FD is fully taxable. The interest earnings form a part of your total tax liability. You must also know that when you earn interest on an FD in a year, it is essentially clubbed with your annual income. Based on the total income, your tax slab is determined. Since the interest income earned on FD is considered "income from other sources," it is therefore charged under Tax Deducted at Source or TDS. When your bank credits your interest income into your account, the TDS gets deducted right at that time. Let's get to know some pointers related to tax on FD:

• The bank doesn't charge tax on Fixed Deposit if your overall income is less than ₹ 2.5 lakh in a year. However, some lenders may ask you to submit Form 15G or 15H to claim the deductions.
• If you want to save on TDS, make sure you submit Form 15G and 15H to the bank at the beginning of the financial year to avoid additional TDS.
• If your interest income from all FDs is less than ₹ 50,000 in a year, the income is TDS exempt.
• On the other hand, if your interest income is over ₹ 50,000, the TDS would be 10%. Besides, if you do not have a PAN card, the bank can deduct 20% of TDS.  

What is the Exemption Limit for TDS Deduction on an FD?

 Knowing the exemption limits for Tax Deducted at Source (TDS) on Fixed Deposits (FDs) is important for effective financial planning. As per the current Income Tax rules, the exemption limits vary based on the age and taxable income of the depositor.

The exemption limit for TDS on FDs is ₹ 50,000 for individuals excluding senior citizens. This means TDS will not be deducted if the interest earned on an FD in a financial year is below ₹ 50,000. On the other hand, senior citizens enjoy a higher exemption limit of ₹ 1,00,000 acknowledging their financial circumstances.

Individuals with a total taxable income of less than ₹ 4 lakh are completely exempted from TDS on their FDs. This exemption is a relief for individuals with lower incomes ensuring that they are not burdened with tax deductions on their FDs.

It is important to stay updated with the latest Income Tax guidelines as these exemption limits are subject to change. Regular updates from official sources and financial institutions will help you to make informed decisions and stay compliant with the latest regulations concerning TDS on FDs in India.  

What is TDS on FD Interest for General and Senior Citizen?

TDS means Tax Deducted at Source. It is applicable when the interest earned on FDs exceeds ₹ 1,00,000 in a financial year for senior citizens and ₹ 50,000 for general citizens. The bank deducts TDS at 10% if your PAN is updated. If your PAN is not linked, a higher TDS rate may apply. This deducted amount is treated as an advance tax payment. It's important to understand TDS while filing your income tax returns to avoid any discrepancies or underreporting. Remember that senior citizens can also submit Form 15H and general citizens can submit Form 15G to save TDS if their total income is below the taxable limit.

How to Avail TDS Waiver on an FD?

To avoid TDS deduction on your FD interest in India, you can submit either Form 15G or Form 15H to your bank. These forms serve as a self-declaration, informing the bank

that TDS should not be applied on FD interest as your income is below the basic exemption limit. If your age is below 60 years, use Form 15G and if your age is 60 years or above, use Form 15H. By providing these forms to your bank, you ensure that TDS is not deducted, allowing you to receive your full FD interest without tax deductions provided your income remains within the exemption limit.  

What is the Purpose of Form 15G and Form 15H 

Forms 15G and 15H are self-declaration forms that can be submitted to avoid Tax Deducted at Source (TDS) on specific income. Form 15G is for individuals below 60 years while Form 15H is for senior citizens (above 60 years). If the total income is below the taxable limit, these forms can be used to declare that no tax is payable. By submitting these forms, individuals can save TDS on interest income from Fixed Deposits (FDs), Recurring Deposits (RDs) and other sources ensuring they receive the full amount without tax deduction.  

Is FD interest taxable if my income is below the tax limit?

Yes, FD interest is taxable, but if your total income, including the interest, is below the basic exemption limit, you are not required to pay income tax. However, banks may still deduct TDS on FD interest if the annual interest exceeds ₹ 50,000 (₹ 1,00,000 for senior citizens). To avoid being charged TDS, you can submit Form 15G (for individuals below 60 years of age) or Form 15H (for senior citizens), declaring that your income is below the taxable limit. This prevents TDS deduction and spares you from the process of claiming a refund later.

Let's Understand the TDS on FD with Example

Mr Anand has three FD Accounts with three different lenders. Bank A fetches interest earning of ₹ 50,000 per annum, while Bank B helps him earn ₹ 30,000 per annum and Bank C gives him an interest of ₹ 30,000 per annum.

On the basis of the TDS, Mr Anand is liable to pay 10% TDS, as his interest earnings exceed ₹ 50,000 in a year. The tax department doesn't consider your total interest earnings from all the banks. TDS is only on the interest amount that exceeds ₹ 50,000 from Bank A. For the other two accounts, Mr Anand will get a Fixed Deposit income tax exemption.  

Tax Deductions on FDs for Senior citizens:

 Just like elders are offered special interest rates on FDs; similarly, tax deductions are different for them. In the case of Senior citizens (60 years and above), the TDS exemption limit is ₹ 1,00,000 under Section 80TTB of the Income Tax Act.

FAQs

Can a refund be claimed for TDS charged on a Fixed Deposit?

Yes, if TDS is deducted on your FD interest but your total income is below the taxable limit, you can claim a refund while filing your Income Tax Return (ITR). Just declare the interest and TDS details in your ITR to get the refund credited to your account.

Is FD interest taxable or exempt from income tax?

FD interest is taxable, but if your total income (including interest income) is below the exemption limit, you don’t need to pay income tax. Submitting Form 15G or 15H to your bank can help you save TDS and save you the effort of claiming a refund later.

How much FD interest is tax-free?

For tax purposes, FD interest up to ₹ 50,000 per year (₹ 1,00,000 for senior citizens) is exempt from TDS. But the interest itself is taxable as per your income slab. If your total income is below the basic exemption limit, you may not have to pay any tax.

How do I save TDS being charged on FD interest?

To save TDS on FD interest, submit Form 15G (if you are below 60 years of age) or Form 15H (if you are a senior citizen) if your total income is below the taxable limit.

How is TDS on Fixed Deposit calculated?

TDS on FD is calculated at 10% of the interest earned in a financial year if it exceeds ₹ 50,000 (₹1,00,000 for senior citizens). If your PAN is not updated, TDS may be charged at 20%. The bank deducts it before crediting interest to your account.

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